Best Practices for Paying Off Debts
Falling in debt can seem like a grim situation as interests seem to rise like the waves of a deluge ready to sweep you from the map, but with a determined mind and grim patience it is possible to make it out. Following are some key practices that will get your financial structure reestablished with your debts being regularly paid off.
- List debts by interest rate
The tendency is to simply ignore problems hoping they will just go away, but the first step to properly facing the debts that surround you is by knowing exactly where you are in relation to where you must be. To get a good idea of where you are, take out your bills and begin listing them in order of smallest to largest.
Then begin prioritizing your debts in order from largest to smallest interest rates. Because those with the largest interest rates will be costing you the most and you will want to address this first. Once you have added your accumulated debts you will have a better idea of where you stand and is required for how long to make it out of debt.
- Have an emergency savings fund
Expect the unexpected and have a cache of cash set aside for the various emergencies that are bound to arise during this debt recovery. Before you begin an earnest plan to regularly pay off your debts make sure you have about $1000 set aside to address the unexpected needs so that these do not derail your plans.
Then if you hit an emergency and need to dip into this fund, be sure to replace the damages before continuing on your path to debt recovery. But be sure you are still hitting the minimum payments for the credit cards and other small debts.
- Always make minimum monthly payments
Never forget to make those important minimum payments on each of the debts you have, this will keep you from making any higher payments in the future. So, if you do have certain debts with higher interest rates and additional funds that can be applied to this project can be allocated to avoiding these higher interest rates.
One good idea is to use the closing date rather than the payment due date. This is the day the bills are closed for the months and all information will be included in the next month’s statement.
The balance will be reported to the credit bureaus on this day and a statement that shows the zero balance will effectively avoid paying higher interest rates in the future. This not only saves cash but will improve your credit rating in the future as well. Many have said that doing this has helped with outstanding debts.
- Create a budget and remove any extraneous items
If you don’t already operate from a budget plan you will need to get one up and running as as possible. The idea of operating from a budget may conjure up ideas of starvation and want, but this is really just a method of telling your money where it needs to go to cover the needs you have.
The best way to do this is to look over the figures from your last month and the various credit expenses you are shouldering. This can be done on a paper budget excel sheet. There are also many apps that can be applied to creating a functioning budget plan that will cover your needs and then some.
The envelope method is another way of applying a physical budgeting system to your plans. The envelope system works exactly as it sounds, an envelope marked with each monthly expense and the amount needed to meet this expense, line the envelopes up in order of importance and voila — you have an effective budgeting system the old-fashioned way. To the day this is the most widespread way to keep funds in order.